On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the possibility of lower mortgage rates this summer with tariff drama and Trump’s talk about an implicit guarantee for Fannie and Freddie.
Related to this episode:
Will an implicit guarantee keep mortgage rates from rising after release of GSEs? | HousingWire
https://www.housingwire.com/articles/implicit-guarantee-gse-release-mortgage-rates/
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the H
Related to this episode:
Will an implicit guarantee keep mortgage rates from rising after release of GSEs? | HousingWire
https://www.housingwire.com/articles/implicit-guarantee-gse-release-mortgage-rates/
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the H
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the possibility of
00:11lower mortgage rates this summer, given tariffs being blocked, Trump's talk about an implicit
00:16guarantee for Fannie and Freddie, and more. First, I want to thank our sponsor, Rocket
00:21Clothes, for making this episode possible. Logan, welcome back to the podcast. You're
00:27like a true celebrity now. The President of the United States shared my article.
00:37You know what's weird? I was up, of course, I was up late looking at the bond market,
00:43and the bond market trades a little bit differently lately, late at night. And then all of a sudden,
00:47I see this surge in activity. And I was like, what's good? So we had an interview with Yahoo
00:53this morning, so I had to go to sleep. Then I wake up, and then everybody's telling me,
00:58the President of the United States shared your article. And I was like, okay, the President
01:04approves the chart data, chart poppy, brain candy, whatever you want to call it, good to go.
01:09I don't know if he approved any of those things. But yes, and tell us what the article was.
01:14Well, the article was Bill Pulte's calling for the Federal Reserve to lower rates. And again,
01:21a lot of people come back and go, well, the Fed cut rates, and then the bond yields went up. No,
01:27the 10-year yield got ahead of the Fed rate cuts, and we're pricing in much weaker economic data. We
01:33had a 2% move lower in mortgage rates from the peak before any rate cuts happened. So remember,
01:38the equilibrium is still 65% to 75% of where the 10-year yield of mortgage rates can range is still
01:45Fed policy. So when Fed President Neil Kashkari a few months ago said, listen, if we wanted to have
01:51mortgage rates go lower, we can do it. We can cut rates and get lower rate trends. But we're just
01:56not at that stage in our policy. So this is why they do it. I know a lot of people get confused
02:02about this. But if you cut rates more, the lower end of the band, 6% would be much easier,
02:10which was interesting, because we'll talk about this a little bit later. But with the tariff situation
02:14might get blocked. The Federal Reserve has already made a comment about that. But a lot to talk about.
02:19Man, it's like a whole three months happened after our last podcast. We were just talking
02:24with this event, that event, this event, oh, you know, so a lot to do.
02:28We talked two times yesterday about, okay, we're going to talk about this. And then something else
02:31that we're going to have to talk about this. And this morning, it's like, okay, now there's
02:34like four topics. So let's dive into the tariff part, because you did like this. This could have
02:39some legs for mortgage rates. So tell us what the latest is and what you think is going to happen.
02:44So before the trade war tap dance, we had two rate cuts priced in. I think where I'm different
02:52than everyone else, a lot of people say, well, the Fed would have been cutting rates now because
02:57the CPI inflation. And I disagree with that. I say that let's say there was no tariffs,
03:02no Godzilla tariffs. The Fed would have been doing what it's normally done. We're going to take our time.
03:07The labor market is still sound. Jobless claims are still low. We're getting close to neutral policy.
03:14Maybe we don't need to. They would have frustrated us anyway, even if there were no Godzilla tariffs.
03:19What Godzilla tariffs did is that the market went, obviously we could see now the stock market doesn't
03:25like tariffs, right? So that's just the same thing in 2018, 19, and the same thing now. So
03:31market activity pushed the 10-year yield below 4%. So what we talked about almost three months ago is
03:37that I don't believe the 10-year yield should be here based on the labor data, based on Fed policy.
03:41So we should be around 435. 435 to 470 is an acceptable range. If the data gets weaker,
03:47then yeah, you could take it all the way down even to the borderline, but we're just quite not there
03:52yet. And again, I'm working off of Fed policy. That's what, I don't make the rules. It's them.
03:58So my job as an analyst is to basically conform whatever my models believe that we could range in.
04:03But now, I don't, you know, there might be other ways that the president and the White House can
04:11get tariffs in, but obviously that was a blow. I even think one of the judges were a Trump-appointed
04:18judge too. So in any case, what this does is, what does this mean for the Federal Reserve now?
04:25Because they made their, we're waiting, we're waiting because of tariffs. That was their whole
04:30policy. That, you know, we raised our inflation expectation because of tariffs. We raised our
04:36possibility of a recession due to tariffs. Now, what do they do?
04:40What do they do? Okay. So what did, we had a Fed president come out today. What'd they say?
04:45Yes. President Goolsby from the Chicago Fed said, if you do deals, we could lower monetary policy.
04:55So there's your first shot out there. Of course, you know, it makes their job a lot easier if there
05:03were no Godzilla tariffs. Of course, you know, the stagflation discussion and everything in that
05:08nature starts to fade away. So Fed presidents, okay, their verbiage now becomes even more critical
05:18because now they can say, well, if Godzilla tariffs aren't here or if they do trade deals,
05:23then if they all start to talk about this, just kind of think about the two rate cuts can happen
05:28this year in that light because they only raise their inflation expectations because of tariffs,
05:33right? And then Godzilla tariffs just made it worse. And we're, we're back and forth this
05:38deal, that, this deal, that, and now legal. So we're, we're in like limbo chaos even more, but
05:44you had your first Fed president talk about, well, we can lower monetary policy if there are no,
05:50if there are deals with tariffs. And, and with that lowering, would that the two combined be half a
05:56point? I, I, I think the market is always priced in two rate cuts. So the bond traders are going off
06:01of, you know, what economic data is and inflation expectations. You remember the Fed raised their
06:06inflation expectations, knowing that tariffs might be the policy. Nobody expected Godzilla tariffs.
06:13So that kind of threw everyone through the markets array through the bond market, everyone. So
06:17everyone's trying to adjust to what is going on, but kind of before the legal court case ruling,
06:24people are saying, well, we might not cut rates at all until September, until we see what's going on,
06:28but now we have deals starting to be done. I would block it. So we need a little bit more clarity
06:33who it's, it's Thursday morning, who knows what will happen by Friday morning. I mean, it's just,
06:40we've had so much happen within like a five day period. It's crazy.
06:45No, it is crazy. Also, you know, last year around the time that we saw rates drop was that end of
06:51summer, beginning of September kind of thing. And, and I wonder if by, you know, we've all said in the
06:57summer is when you're going to start to see some of that economic data, the hard data turn. So maybe
07:02we're, we're looking at a late summer rally for, for home sales. Here's, here's one thing. If you
07:09look at the revenue collection, the tariffs haven't been fully like going into our economy yet. You
07:17know, we're, we're, we're collecting more money, of course, but you could see that we're just quite
07:22having got the, the goods being delivered where it could actually show up on prices. So
07:30that's one thing. And then, and this is the thing that tariffs aren't as fast as something like rates,
07:36right? So it's a process. So you, I trust me, I know nobody's going to do this track tariff
07:41revenue percentage, you know, coming in and do, to get to see like how much volumes and what percentage.
07:45So it's going to take a little bit more time, but again, we're, we're dealing with this deal,
07:51that deal, this legal case. So it gets a little bit more hectic and not so simple to maybe track
07:58until we get more clarity on what's happening. So again, we just got more chaos to a degree,
08:05but maybe there is an end game where the federal reserve can actually chime in all of them and then
08:11maybe take something forward out there. Okay. We have yet another variable here. And that is
08:17that Trump announced, was it Tuesday? I don't even remember at this point that there would be that he
08:23was focused on taking Fannie and Freddie out of conservatorship, but said that he would do it
08:30with an implicit guarantee. So, you know, we've been talking the last couple of weeks ever since he said
08:35something about taking them out, had different things. The difference here was that he talked about
08:39an implicit guarantee. So you wrote a great article talking about what the difference is between
08:44implicit and explicit. So let's talk about that. Right away, there was, I could already see there
08:49was some confusion because they thought that the government backstop would be there, you know,
08:53in an explicit fashion. And he, he tactically used the word implicit. To me, I mean, I applauded that
09:01because the worst case scenario that I thought could happen was removed, that you try to take them
09:07public without any implicit or explicit backing, which I never, I never thought like, how's that
09:13possible? There's just no way these are just wait. There's like, no, you know, and that's been the
09:18stance I've had for, for many, many years. We've talked about this. There's just no way you could
09:22take them out without the government backing. We even talked about this months ago that they ran some
09:26models out there. And to me, it looks like they can't do this without giving some type of
09:31government guarantee. So the implicit isn't a, as solid, uh, legally as an, uh, explicit guarantee
09:40where every, all investors know that's it, you know, we're good. We got the backing out there.
09:45So now at least if they're using that, they could go to investors and say, what do you guys think?
09:51Where is, where's, uh, uh, the spreads you think is going to happen with this. So there's a little bit
09:58more clarity on what the game plan is. And with a little bit more clarity, they can go to investors
10:02and see what, what are you guys thinking about this? So, um, I got asked one question, what was
10:08the highest spreads in history? And I said, May 8th, 1980, it was 5.82%. I think that's correct.
10:17I think that's, that's a high where you're, you're basically near 6%. Uh, of course, recession,
10:22inflation, or there's tons of things happening back then. Uh, and clearly without the spreads
10:28getting better, you know, in 2024 and 2025, we would have a much different housing discussion.
10:32So, um, it's a little bit more positive in the sense that we're now, we gave the government backing,
10:39not explicit, but implicit. And then we can go to investors and see what they say, because
10:44the sense said that, listen, if this is going to raise mortgage rates, we're not going to do it.
10:48You could see why now, you know, the president wants lower rates.
10:52The treasury wants lower 10 year yields. Pulte wants lower mortgage rates out here. Uh, and,
10:59uh, in this regard, you know, I think they would even feel a little bit more hesitant if something
11:04made things worse in this environment, right? Maybe two or three, two years down the line, when
11:10rates are a little bit lower, they can maybe go into this, but now you could kind of see there's
11:14something in the background working here. Okay. So maybe talk for when you say implicit,
11:20implicit, that's what we had before the great financial crisis, right? That that's why they
11:24were able to take them into conservatorship. Maybe, maybe explain a little bit about the
11:28difference there. So implicit means I'm just going to keep it very simple. If all hell breaks loose,
11:33the government will take them. And that's what happened. All hell broke loose and the government
11:38take it. Now we've had implicit guarantees for a very long time. The market was somewhat functioning.
11:42If you look at mortgage spreads throughout history, but a lot of things changed after 2008,
11:49when you took them in conservatorship and the mortgage backed security market was broken,
11:52the federal reserve became the biggest investor into that. So a lot of people said, well, if the
11:57fed isn't buying, nobody's going to buy MBS and the spreads will never get good. Or, you know,
12:01so a lot of, I would say a lot of the higher rates going to eight to 10, even 12% people were
12:07higher spreads getting worse in 2024 or 2025, not getting better. Uh, there was only a few of us
12:15that I could remember that we're talking about spread should get better because we had an implicit
12:19guarantee. We didn't have the federal reserve buying mortgage backed securities and it always
12:24got better as the market volatility stopped. And then, um, uh, the fed started cutting rates and
12:30that's, that was the premise for the spreads getting better in 2024 and 25. Of course, you know,
12:34we had market drama and the spreads got worse a little bit, but now it's improving a really good
12:39example. Yesterday when the 10 year yield was up a little bit, hardly any damage to rates because
12:43the spreads got better there. So we're kind of a more kind of calm down secure spot. You do need
12:50the 10 year yield to go lower for that next, next stage for lower rates. But here we are, we got a lot
12:57more questions answered and then a lot more chaos happening this week as well. I think, you know,
13:03the reason I wanted to point that out is because like the MBA, when it talks about a mortgage
13:07bankers association, when it talks about, you know, the plan to, if there is a plan to
13:12take a, to release the GSEs, they're calling for that explicit guarantee, right? An explicit
13:18federal backstop. And so I, I just, I think it's very interesting because to your point, it's
13:23what, if you take them out, it really, the whole thing comes down to what do investors feel
13:29safe about. And that's, what's going to help or hurt the market.
13:33Yeah. But, and we also had a, a marketplace, a functioning marketplace with an implicit guarantee,
13:39but when all hell breaks loose, see, that's my thing. When all hell breaks loose, nobody thought
13:44Freddie and Fannie would need a conservatorship. They just thought they were giants, but their
13:48capital leverage ratios are so big, you know, that it just, they need to raise so much money
13:54out there. So per the, per the laws really, you know, so it becomes a, a, a questionable theory.
14:02Should a publicly traded or even a company be allowed to have preferred shares with an implicit
14:08backing? And that's used to be the case. So at least, you know, the worst case scenario in my book
14:15is kind of off where, where they just take them public and there's no government backing. And it's
14:21just like mortgage, like, no, nobody's going to, nobody's going to ensure that, uh, uh, at normal
14:27rate risk. Love that. Thank you for walking us through that. Okay. More economic news. So less
14:33political news, more economic news, unless you want to. No, no, no. I, I think this is, I think
14:39this is one of the strangest housing years for people out there. I mean, people are just deer in
14:44the headlights with some of these data lines. So let's, let's just review right now. The pending home
14:49sales came in. If you look at the headline, the biggest month to month declines since 2022.
14:55What do we want to say? We believe the NAR is pending home sales data is a little bit too extreme
15:01on the month to month. Brits last month, it was a really big beat. This month was a big miss. Not
15:05much is going on. So we want to track our four looking data. Our, our forward pending sales data
15:12has finally showed some year over year growth purchase application. This is like crazy to say this.
15:17This is true. Purchase application data yesterday up 18% year over year. For the last four weeks,
15:24it's been up double digits. It has had a 17 week winning streak. There's less cash buyers this year,
15:30of course, but our pending sales are now finally going positive. Our purchase application data is
15:37still positive. This is all with elevated rates. If this was with a mortgage rates were at 6%, I really,
15:41really would have made a big deal about this. This is all happening with elevated rates. So when I did the
15:47interview with Yahoo this morning, I said, positive story, inventory is up, price growth is slowing
15:51down. You don't see a collapse in purchase application demand or home sale demand anymore.
15:56We're building that base. We show those charts going back to the 1968, what happens every single time.
16:04There was not a time that this does not occur. You build a base. The next stage is actually a
16:09recession. Sales growth. It's 1968. You take every single cycle. That's why we like to show those
16:15charts in that matter. Here, nobody knows what to do with this because they're looking at this data
16:22and they're like, oh, that's like four straight weeks of double digit year over year growth. Remember,
16:26purchase apps, look out 30 to 90 days. So did a little mini dissertation on this on X to try to teach
16:31people. But what if you get these applications, but it takes longer to sell a home? It doesn't mean
16:39they fall into the monthly data prints right away. So in 2020, this is a perfect example. In 2022,
16:49the 10-year yield went lower at the end of the year. We had 12 weeks of positive forward-looking
16:54data and purchase. It all fell in one report. It was like half a million more home sales. Nobody really
17:00had that, but it all just fell in there. Even though there was 12 weeks of data that was getting
17:05better, sales didn't, you know, weren't growing. And all of a sudden, one report, kaboom. Even I said,
17:11that was it, guys. That's everything fell into one report. It's really crazy. So kind of look at it in
17:16that light. But, and this is key, the existing home sales reports that you will get in July to November
17:23for the months of June to October will have the lowest conference in history. So if you see
17:31year-over-year growth, because if I take the last existing home sales trends and just have it be
17:36flat, you know, in two months from now, it'll show positive year-over-year growth. And this is
17:42happening with elevated rates. If mortgage rates can get down to 6%, as I talked about in Yahoo,
17:47we could get more sales. We just see, we just see better tracking data with that. So
17:51as crazy as it is, I love 2025. I mean, I'm getting my inventory growth. We're almost back to 2019
17:58levels. We're at the low end. So it's kind of like, I had to explain this to somebody. Somebody
18:03said, oh, we're at 2019 levels. No, we are at the seasonal peak periods of inventory, which is
18:08touching the bottom end of 2019, which we want to do is start a year at 1.52 million. Now, a lot of
18:15people would say that's still historically low. Yes, it is. But you're never going to hear me
18:19say the word low inventory once inventory is above 1.52. I've been saying this for many,
18:23many years is that this has to happen. You want a functioning housing market. You got to get this
18:27to happen. So I'm loving seeing all this. We're doing all this and there's no national home price
18:33crash. All these 2006, by the way, it's hilarious how the doomers are very good in taking one single
18:40data line and say, this happened in 2006. This happened. And I was just like, no, that was a
18:47different marketplace. But in this case, I think the purchase application data confused people. Also,
18:53the new home sales purchase application data is a post and pre-COVID high. And everyone's like, what?
18:59So Sarah, you and I have had this talk for what, four or five years now. This data line is very funky.
19:05And unless you religiously track it, it could confuse the hell out of you. This year, it's
19:11confusing the hell out of everybody. But we could see some growth for during that period. Remember in
19:16July to November, the reports were June 8th, just because we have a very low bar and take it from
19:21that kind of grain of salt on the pending home sales data, both positive and negative, unless the
19:27forward-looking data that we track kind of confirm it. So in short, not too much is happening,
19:34but the fact that it's a little bit healthier market with elevated rates just show that
19:37what President Trump and Bessent and Polity want, lower mortgage rates. Why? Because younger people
19:43finance most of their home purchases and they benefit the most. In fact, the millennials actually
19:51took back the number one ranking two years ago when rates fell a little bit and they're back up there.
19:57They're massive, right? Just a massive mess. It's like 50 million of them working.
20:01There's only 17 million baby boomers left working. Gen Z has actually surpassed the baby boomers in
20:07terms of workforce. So you can understand why that's been the case. But if you're totally confused
20:12with housing data, I totally get it. You just totally skipped by Gen X. What is that?
20:20No, no. I said Gen X is fine. They've been very stable the entire time. It's funny because I mentioned
20:26that, you know, the person thought I was talking about Gen X being the biggest. No. Gen X has a
20:30very healthy, firm percentage because they would technically be the move-up buyers. Now, again,
20:35if you're a mortgage rate lockdown person, you're basically saying we're going to miss about two to
20:402.5 million home sales because the Gen X and baby boomers will never buy because they're locked in.
20:44They're locked into their house. They cannot do anything. Inventory cannot grow ever.
20:49They're locked. And guess what happened? Every week, every month, people sell their low mortgages
20:55by. Life happens. See, the mortgage rate lockdown is a really doomsday theory. It is really like...
21:01Because you... And we had a whole debate about this, which, you know, we won't go into here,
21:07but it's really... You don't want to go into it because you lost.
21:10It's really your definition of mortgage rate lockdown. Nobody else thinks about it the way
21:14that you do. Oh, and a lot of people think about it. They always tell me, inventory can grow.
21:17Oh, nobody's going to sell their house with their low mortgage rate every day. I've been hearing
21:21that and go, that's not in the data. Now, granted, most people don't have the coupon data to take
21:26a look at to see that this has been happening for years, but it's okay. That's why I'm here.
21:31So we should know, you know, one of our debates or further ones, we should have another mortgage
21:36rate lockdown debate because I got a whole mess of more data lines to show now.
21:41Sarah, thank you. Thank all the people out there for understanding how bossy you are because I had
21:49my hair wet and everything and you're looking at me like nodding your head. That ain't going to
21:54happen. Go fix your hair up. Shut this down. We're going to wait until he gets his hair fixed and then
22:00start over again. You are bossy and we have evidence of it now.
22:05Logan, you are the Ferris Bueller of economics. You really are. Like you convince people that
22:12somehow you are the, the poor person that's being persecuted here. And I'm, I'm like a
22:18Jennifer Gray's character is little sister. I'm like the older sister. That's, that's how I always
22:23feel. You always, it, people are like chiming in how I'm being so mean to you. So bossy. And I'm
22:27like, are you kidding me? Pretty soon. I'm going to look out and there's going to be a Ferris Bueller
22:31thing. We have it on, we have it on video recording. So there's nothing you, you can't
22:36hide from this. Your face, your face was just doing, no, this is not happening. Chart poppy,
22:44go fix your hair up. No, no, Clay, take all this off this, fix everything up. And we go straight.
22:50All of a sudden my hair's all wet. And then all of a sudden two seconds later, it's like,
22:54you know, Pat Riley again. This is my job. This is my job. I was doing my job. I appreciate
23:00your wrap up of this housing market because it is really confusing and it's, it's kind of hard to
23:07know, like, is this positive? Is this negative? Because we have so many variables and we have so
23:12many different data points coming out. So I appreciate you kind of walking through it and
23:15saying like, this is how you feel about this housing market and what our short-term prospects are.
23:20I've always stayed consistent with my work. I was like, again, this started in May of 2020.
23:28We were looking back at the two and they're like, oh my God, home prices are up 8%. Guys,
23:31this is not a good spot to be in. Inventory's breaking. The unhealthy housing market was prices
23:38escalating out of control because it kills future demand. The healthy housing market is inventories
23:43growing, more choices, price growth cools down, wages and households can catch up. And then when rates go
23:49lower every single cycle since 1968 or existing home sales, right? So I, if, if home prices were up
23:57six, 7%, inventory wasn't growing and new listings data wasn't growing, I would not be saying this,
24:03but that has not been the case in 2024 and 2025, 2024 home prices were, it was a little bit hotter
24:10than I would like, but it wasn't egregious. And this year, you know, I still need a more softness
24:16in the second half of the year to get my price forecast correct, but all of this is good. It sets
24:22up a better backdrop for the future where 2023 wasn't the case. Prices fell, ended up 6%. Home sales
24:29were record low levels. New listings data didn't grow. Inventory only picked up very late in the
24:34second half of the year. This is, this is different. This is better. And it gets a better foundation for
24:41growth in the future for whenever rates do fall down. And again, you don't need three. You don't
24:45need four. You don't need five. I mean, all that would work, but just getting down to six and get it
24:52going. We can hope for that. We just down to six would make a huge difference. Logan, thank you so
24:57much. We will talk again very soon. And that's good because things change fast. Salute. God bless America.
25:04God bless America.